Kemrock Industries & Exports Ltd

To

The Members of

KEMROCK INDUSTRIES AND EXPORTS LIMITED

1. We have audited the attached Balance Sheet of KEMROCK INDUSTRIES AND EXPORTS LIMITED(the "Company") as at 30th June, 2012 and the Statement of Profit & Loss andthe Cash Flow Statement for the year ended on that date, annexed thereto. These financialstatements are the responsibility of the Company's management. Our responsibility is toexpress an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with Auditing standards generally accepted inIndia. These Standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatements. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements. An audit also includes assessing the accounting principlesused and significant estimates made by the management, as well as evaluating the overallfinancial statement presentation. We believe that our audit provides a reasonable basisfor our opinion.

3. As required by the Companies (Auditor's Report) Order, 2003 as amended by theCompanies (Auditor's Report) (Amendment) Order, 2004 (the "Order") issued by theCentral Government of India in terms of sub-section (4A) of section 227 of the CompaniesAct, (the "Act") 1956, we enclose in the Annexure a statement on the mattersspecified in paragraph 4 and 5 of the saidorder.

4. Further to our comments in the annexure referred to in paragraph 3 above we reportas Follows:

(a) We have obtained all the information and explanations, which to the best of ourknowledge and belief were necessary for the purposes of our audit.

(b) In our opinion, proper books of account as required by law have been kept by theCompany so far as appears from our examination of those books.

(c) The Balance Sheet, the Statement of Profit and Loss and the Cash Flow Statementdealt with by this report are in agreement with the books of account.

(d) In our opinion, and to the best of our information and according to theexplanations given to us, the Balance Sheet ,the Statement of Profit and Loss and the CashFlow Statement dealt with by this report read together with the notes thereon comply withAccounting Standards referred to in sub-section (3C)of section 211 of the Companies Act,1956 subject to,

(i) Note no. 19.1 on Project Exports for Fiber Reinforced Polymer (FRP) amounting toRs. 57,566.04 lacs for which reference to Appropriate Authorities is pending for nonreceipt of earning from exports of Rs. 31,175.18 lacs since last six months from the dateof financial statement.

(ii) Note no. 43 on non provision of doubtful advance/ loan of Rs. 1000 lacs in theearlier years given to an entity, which is a company under the process of striking off.Accordingly Profit for the period is overstated, Investment is overstated & surplus inStatement of Profit & Loss is overstated to that extent.

Without qualifying our opinion we draw attention to:

(i) Note no 16.1 on Advances given for acquisition of Land treated as Capital advancesamounting to Rs.27,467 lacs

(e) On the basis of written representations received from the Directors and taken onrecord by the Board of Directors, we report that none of the Directors is disqualifiedfrom being appointed as director as on 30th June, 2012 in terms of clause (g) ofsub-section(1) of section 274 of the Companies Act, 1956;

(f) In our opinion and to the best of our information and according to the explanationsgiven to us, the said accounts read together with the Significant Accounting Policies andnotes thereon give the information required by the Companies Act, 1956 in the manner sorequired and give a true and fair view in conformity with the accounting principlesgenerally accepted in India.

i. In the case of the Balance Sheet, of the state of affairs of the Company as at 30thJune, 2012.

ii. In the case of the Statement of Profit and Loss, of the Profit of the Company forthe year ended on that date; and

iii. In the case of the Cash Flow Statement, of the cash flows for the year ended onthat date.

1. In respect of its fixed assets:

(a) The company has not maintained proper records showing full particulars includingquantitative details and situation of fixed assets on the basis of available information.

(b) As explained to us, all the fixed assets have been physically verified by themanagement at reasonable intervals, which in our opinion is reasonable, having regard tothe size of the company and nature of its assets. In our opinion and according to theinformation and explanations given to us in respect of assets physically verified duringthe year, the discrepancies noticed were not material and have been properly dealt with inthe books of account.

(c) In our opinion and on the basis of information and explanations given to us, theCompany has not disposed off a substantial part of its fixed assets during the year andhence the going concern status of the Company is not affected.

2. In respect of its inventories:

(a) In our opinion and according to the information and explanations given to us, theinventories (excluding material in transit & goods lying at third parties) have beenphysically verified by the management at reasonable intervals.

(b) In our opinion and according to the information and explanations given to us, theprocedure of physical verification of inventories followed by the management is reasonableand adequate in relation to the size of the Company and the nature of its business.

(c) On the basis of our examination of the records of the company, we are of theopinion that the Company is maintaining proper records of inventory. The discrepanciesnoticed on verification of stocks as compared to book records were not material havingregard to the size of operations of the Company and have been properly dealt with in thebooks of accounts.

3. The Company has neither taken nor given any loans secured or unsecured from/toparties covered in the register maintained under Section 301 of the Companies Act, 1956.Consequently, clause 3 (b) to (d) and (f) and (g) of paragraph 4 of the Order are notapplicable.

4. In our opinion, and according to the information and explanations given to us, theCompany needs to further strengthen its internal control procedures so as to becommensurate with the size of the Company and nature of its business for the purchase ofinventory and fixed assets and for the sale of goods and services. During the course ofour audit, we have not observed any continuing failure to correct major weakness ininternal control system.

5. In respect of the contracts or arrangements referred to in Section 301 of theCompanies Act, 1956:

(a) In our opinion and according to the information and explanations given to us, thetransactions that need to be entered into the register maintained under Section 301 of theCompanies Act, 1956 have been so entered.

(b) In our opinion and according to the information and explanations given to us,transactions exceeding Rs. 5 Lacs have been made at a price which is reasonable havingregard to the prevailing market prices at the relevant time.

6. The company has not accepted any deposits during the year from the public within themeaning of the provisions of Section 58A and 58AA or any other relevant provisions of theCompanies Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975 with regard tothe deposits accepted from the public are not applicable to the company.

7. The Company has appointed a firm of Chartered Accountants as its Internal Auditorfor the year under audit. The Internal Audit for the year is therefore carried out by thesaid firm. On the basis of internal audit reports broadly reviewed by us, we are of theopinion that, the coverage and the scope of the internal audit system needs to be furtherstrengthened so as to be commensurate with the size of the Company and nature of itsbusiness.

8. The Central Government has prescribed the maintenance of cost records under clause(d) of sub section (1) of section 209 of Companies Act, 1956. The company has maintainedthe required Cost Records for the year ended June 30, 2011 and the same records for theyear under audit are under preparation. We have not carried out any detailed verificationof these cost records.

9. In respect of Statutory Dues:

(a) According to the information and explanations given to us and the records examinedby us, the Company has been generally regular in depositing undisputed statutory duesincluding Provident Fund, Employees State Insurance, Income tax, Sales-tax / Value AddedTax, Service tax, Customs duty, Excise Duty, Cess, Investors Education and Protection Fundand other statutory dues with the appropriate authorities except for delay in payment ofsome dues of Income Tax, Sales-tax / Value Added Tax, Service tax, Excise duty and WealthTax. There are no undisputed above mentioned dues which are outstanding at the year endfor a period of more than six months from the date they became payable except for IncomeTax dues of Rs. 406.62 lacs and Service Tax dues for Rs. 8.61 lacs.

(b) According to the information and explanations given to us, the statutory dues whichhave not been deposited on account of disputes and the forum where the disputes arepending are as under:

10. The company does not have any accumulated losses at the end of the financial year.The company has not incurred cash losses during the financial year covered by our auditand in the immediately preceding financial year.

11. According to the records of the Company examined by us and the information andexplanation given to us, other than dues to bank and financial institution, the Companyhas not defaulted in repayment of dues. The over dues relate to the reporting period endedon June 30,2012. On the basis information and explanations given to us and on the basis ofrecords produced before us, consequent upon the sanction of restructuring scheme, thereare no defaults in respect of loan sanctioned by the banks and financial institutions forthe above mentioned dues, in terms of principal and interest thereon, as at June 30,2012except in case of AXIS Bank which has not approved restructuring application for unfundedletters of credit aggregated to Rs. 854.12 lacs, External Commercial Borrowing (ECB) fromICICI Bank CAD account amounting to Rs 1563.52 lacs, PNB International Bank amounting toRs 158.63 lacs and Syndicate Bank amounting to Rs 596.01 lacs and Short term loan fromIFCI Factors Limited amounting to Rs. 622.42 lacs.

12. In our opinion and according to the explanations given to us and based on theinformation available, no loans and advances have been granted by the Company on the basisof security by way of pledge of shares, debentures and other securities.

13. In our opinion, the company is not a chit fund / nidhi / mutual benefit fund /society. Therefore, the provisions of clause (xiii) of paragraph 4 of Companies (Auditors'Report) Order, 2003 are not applicable to the Company.

14. The company is not dealing in or trading in shares, securities, debentures andother investments. Accordingly, the provisions of clause XIV of the Companies (Auditor'sReport) Order, 2003 are not applicable to the Company.

15. According to the information and explanations given to us, the Company has notgiven any guarantee for loans taken by others from banks or financial institutions.

16. The Company has obtained term loans from banks and they have been applied for thepurpose for which they were obtained.

17. In our opinion and according to the information and explanations given to us andbased on our examination of the books of accounts, short term funds raised by the Companyhave not been used for long term investment.

18. The Company has not made any preferential allotment of shares / warrants to partiesand companies covered in the register maintained under section 301 of the Companies Act,1956.

19. On the basis of information and explanation given to us and on the basis of recordsproduced before us, the company has not issued any debentures. Accordingly, the provisionsof this clause of the Order is not applicable, to the company.

20. The Company has not raised money through public issue during the year. However, wehave verified the end use of money raised through GDR and FCCB issue made during the year.The same is disclosed in the notes to the Financial Statements (Refer Note No. 3(d) &6 (b) of Notes to Financial Statements).

21. To the best of our knowledge and belief and according to the information andexplanations given to us, no material fraud on or by the Company was noticed or reportedduring the course of our audit.